We have taken some time to outline our ideal investment criteria. While we are not restricted to invest in only companies that meet these criteria, the more criteria that a startup meets, the higher the likelihood of our interest in the investment.
Market Related Criteria
- The entrepreneur(s) have chosen a fertile Niche Market to target (choosing one of our areas of interest is a plus!)
- Market is large enough to generate the desired target revenue, return or exit relative to the investment
- If market is not large enough, the entrepreneur has a clear path to expand to adjacent markets (Bowling Pin Strategy)
- There is a void in the market that is unfulfilled
- If no clear void exists, the team has an innovative approach that can save members of the market time & money, or add meaningful value in some other way.
- The entrepreneurs have taken the time to understand and assess direct and indirect competitors
- The team’s growth plan and sequencing to grab market share makes sense
- The product or service has been validated by the market either through a beta product with initial customers, or through an experiment (mock ups or prototype shared with potential customers with positive feedback received)
Customer / Marketing Criteria
- Clear target customer is identified
- The type of customer is intimately understood.
- The customer has a true need and receives meaningful value or relief from obtaining the product or service.
- Customer has ability and authority to buy (Purchasing power and authority)
- Customer can be reached (Marketing and sales plan is clear)
- Decision making and purchasing process is clear and understood (Conversion Process)
- If the venture has multiple potential customers then each customer segment is prioritized.
- Venture can ideally benefit from network theory (viral organic growth / network effect) to increase awareness and sales
- Decision makers, or highly visible influencers, can provide effective leverage to reach many customers or prospects
- Customers are “sticky” – the business has high retention rates.
Business Model Criteria
- Re-occurring revenue (ideal)
- Ability to upsell add-on offerings, upgrades or related products to customers
- High barriers to entry for competitors
- High switching costs for customers (lock in business model)
- Clear Cost per Customer Acquisition (CPA) or plan to measure
- LTV (Life Time Value) is significantly larger than CPA
- Economically viable and scalable model
- Product has a distinct and “marketable” advantage over competing products and/or alternatives (indirect competitors)
- If the product has not established a meaningful advantage over competing products – the product has a clear plan to gain a marketable and distinct advantage.
- If the product is a software venture – the software should be focused enough to serve a niche market well, but not rigid to prevent the product from adapting to market issues or business objectives that arise.
- Product does not win in the marketplace on price alone (Not commodity product or service
- High profit margins
Team / Entrepreneur Criteria
- The leadership team has sound judgment, justifiable experience and integrity
- The entrepreneur is passionate, committed, focused and driven
- Entrepreneur is able to adapt to change gracefully
- The entrepreneur knows when to “explore” and when to “exploit” and can adapt his team accordingly
- The leadership has a strong ability to collaborate and work with others
- The leadership is willing to listen and understand the perspective and suggestions of others
- The entrepreneur(s) is/are not overly confident – willing to seek out advice from wise counsel when needed (Coachable)
- The entrepreneur or team has deep knowledge of the market and/or customer
- The team or entrepreneur has the ability to manage operations, people and finances
- The leadership understands financial statements & tools like cashflow, budgets and the balance sheet.
- The team has a qualified product engineer or specialist
Operations and Company Criteria
- No partner or investor issues that could be difficult to resolve (“dead equity”)
- No significant looming lawsuits
- There is an operational agreement in place that outlines owner (member) responsibilities and protects against unfair equity allocations.
- No substantial company debt, unless it is income producing or strategic debt.
- Scalable operational systems are in place or planned that can accommodate future customer growth.
Current Status & Existing Performance Criteria
Before choosing to invest or determining a valuation, the current status of each perspective venture should be understood. Various areas of the business should be assessed including:
- Company legal status and structure
- Current product status – Just a plan? MVP (Minimum viable product), beta, product used in market already, etc.
- Existing customer satisfaction and/or commitments
- Existing team & planned potential hires
- Current operational efficiency
- Brand and related assets – Does the brand match the key prospect? Review website, collateral, social media, etc.
- Sales and marketing efforts, performance and plans
- Current financial status and position (Balance sheet review)
Current profitability (cash flow and income statement review)
Investment Related Criteria
- Startup is looking for “Smart Money” and can benefit not only from capital investment, but advising, guidance, marketing help and more.
- $10,000-$100,000 in seed funding
- Reasonable business valuation (equity investments)
- Mutually agreeable convertible notes (debt financing)
If you have a venture, or venture idea that meets these criteria, We want to hear from you. contact us today.